Ideas Radar #5
Another batch of first-glance ideas to look through
Disclaimer: This is not investing advice. Everything written here is my own opinion and is for informational and entertainment purposes only. Everything written here is subject to my own errors, biases, and other types of mistakes. You should do your own research and consult a financial advisor before making any investment decisions. Assume that at the time you are reading this, I may or may not have any type of position in any of the names here. Positions may include ownership of the stock or long or short positions in any options contract whose underlying stock is a company discussed here.
Here’s another group of companies that have caught my attention in recent days or weeks. Like most of my Ideas Radar posts, I think there’s something here that would be interesting to anyone.
Something I find interesting about the companies in this post is that some have share prices at or near all-time highs. This is unusual for me compared to what companies/situations have attracted me historically, yet I still think these are attractive opportunities. Hopefully they signal some evolution in my investing process, or at least some effort to stay open-minded.
As always, each section will contain my rather cursory knowledge of the company. If you know more, please do chime in, especially if it looks like I’m seriously misunderstanding something!
Housekeeping note: starting with this post, the first idea in each of my Ideas Radar posts will be visible to everyone and the rest of the post will be behind the paywall. I believe these ideas are valuable and that the value one might derive from these ideas is large in comparison to the monthly subscription price of my writing. Please consider becoming a paid subscriber to have access to all the ideas.
#1 General Mills, Inc: GIS and Campbell’s Co: CPB
Like many readers and other Substack writers, I enjoy hunting among small, overlooked, forgotten companies for investment opportunities. But sometimes, you don’t have to do that. The beautiful thing about markets is that all sizes of companies are still subject to the whims and vicissitudes of the market participants. There are times when markets latch onto a narrative and drive prices too far in one direction or the other.
Recently, some of the big packaged foods companies have taken a beating from the market, and I think they could be potentially good opportunities. I highlighted General Mills and Campbell’s here because they are big, look inexpensive right now, and because their portfolios of packaged foods and snacks are ubiquitous and contain items that everyone will recognize.
The General Mills portfolio of brands includes a large handful of very common cereals, as well as other recognizable food names like Betty Crocker, Pillsbury, Totino’s Pizza Rolls, and even Haagen-Dazs ice cream. The Campbell’s portfolio isn’t only soups, but includes some notable snacks as well - Pepperidge Farm snacks (including Goldfish), Cape Cod chips, and the Pace salsa brand are among the names most people would recognize.
These businesses seem rather large and stable to me. I’m sure there are good reasons why market participants have immediate-term concerns about, say, earnings this year or next year. Generally, those concerns go like: 1) consumers are feeling extra poor and don’t want to pay for name brand packaged foods, or they’re on Ozempic and don’t like snacks anymore, 2) packaged foods companies have to respond by sacrificing either margins or volumes, and 3) earnings are poor as a result.
Do those concerns really justify these names trading down to below ~10x average earnings from the last 10 years? I don’t think so. I’d rather make a bet that humans continue to consume food, eat snacks, shop at grocery stores, etc. I also think it’s worth keeping in mind that these companies each have histories going back into the 1800s - that is to say, they’ve weathered conditions that we’d probably consider more challenging than those we face today.
I’ll be eagerly keeping an eye on these companies, as well as some other names in the packaged food space, and hoping they get even cheaper to become more compelling bargains.
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